Takeover target: Ten Network Holdings Limited?

Are Foxtel and US company Discovery Communications about to make a bid for the struggling broadcaster?

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Struggling free-to-air broadcaster Ten Network Holdings Limited (ASX: TEN) could be taken over by a joint venture of local pay TV operator Foxtel and US television giant Discovery Communications.

The Australian Financial Review (AFR) reports that the pair are weighing up a joint bid for Ten, which could give Foxtel a 14.9% stake in the broadcaster.

And it seems clear that a number of Australia's billionaires think Ten is in play, given major shareholdings by mining magnate Gina Rinehart, News Corp (ASX: NWS) chairman Lachlan Murdoch (son of Rupert), Crown Resorts Limited (ASX: CWN) chairman James Packer and WIN Corporation owner Bruce Gordon.

The four billionaires are estimated to own a combined stake of around 40%, although the AFR reports that Mr Murdoch and Mr Packer would be willing sellers. The AFR says they have all been sounded out by advisers to Ten, and that some members of the Ten board think the broadcaster has a better chance of success, if taken private.

Ten has been struggling to compete with its rivals Seven West Media Ltd (ASX: SWM) and Nine Entertainment Co Holdings Ltd (ASX: NEC), which have close to double the market share of the third-placed Ten.

Ten has been unable to grow earnings and increase its free-to-air market share against its two competitors, while television advertising revenues have been consistently falling. The company reported a $168 million loss last financial year, and has seen its share price fall 86%, from above $1.50, to the current price of 22 cents over the past five years.

Clearly, the broadcaster needs to do something radical to interrupt that trend, and a move to diversify earnings away from free-to-air TV is warranted. Ownership of Ten by the likes of Discovery and Foxtel could see Ten's programming line-up reinvigorated, while their bigger pockets could also see Ten bid for more Tier 1 sports programming – something rivals Seven and Nine have all over Ten.

A takeover offer for Ten would likely be welcomed by many long suffering shareholders.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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